How do I Create a Personal Budget Plan?

by Nina Makofsky

Gain financial control over your life.

A personal budget plan is a remarkably useful tool, not only helping you track your income and your expenses, but also giving you a psychological boost of feeling more in control of spending and savings. You can use a personal budget to whittle away your debt, meet short-term and long-term savings goals or prepare for a major purchase such as buying a house, going back to school or traveling around the world. Use a budget plan that reflects your lifestyle so that sticking to your budget feels rewarding rather than punitive.

Face the facts. Many people underestimate how much they spend on those double chai lattes, magazines, gifts and cocktail, and then wonder where the money went. The tried-and-true way to assess your monthly spending is to use cash and a notebook and track every purchase.

Total your spending. Look at your cash purchases as well as regular expenses such as rent or mortgage payments, car payments, student loans, groceries, medical expenses, utilities and debt payments. Write down your expenses, making sure to add a cushion for bills that fluctuate.

Pull out your financial records or bank statements so you can create categories to account for irregular expenses, such as property taxes, home maintenance, clothing, vacations, income taxes, holiday gifts and home or renter's insurance. Amortize these expenses by establishing a monthly quantity that equals the yearly total.

Itemize your income. Use paycheck stubs, interest statements and bank statements to get a monthly figure of household income. Place this information in a separate column from your expenses so you can easily total your income and compare it to your monthly expenses.

Create room to breathe. You have a greater likelihood of successfully budgeting your money if you allow for a small amount of spontaneous spending. Once you have a savings account, retirement account and an emergency account, you can set aside money for an adult allowance that covers some of those magazines and chai lattes.

Tips

Check your budget every few months to see if the categories and quantities accurately reflect your spending and savings habits. Adjust it accordingly, making sure you still can reach your financial goals.

Consider using an online budgeting tool, such as the worksheets at the Mint.com website, to track spending and graph your financial trends.

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About the Author

Nina Makofsky has been a professional writer for more than 20 years. She specializes in art, pop culture, education, travel and theater. She currently serves as a Mexican correspondent for "Aishti Magazine," covering everything from folk art to urban trends. She holds a Bachelor of Arts in English from Mills College.